Exemptions On Income Tax For Salaried Employees

Income Tax Exemptions for Salaried Employees

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There are a number of great ways to save taxes. You need to make use of the tax-saving instruments wisely in order to your tax payments. There are several exemptions available under income tax act here we will discuss the same.

Allowances Exempted as per Income Tax Act Section 10

House Rent Allowance (HRA)

There are people who relocate from one city to another in order to seek new job opportunities.  For instance, IT professionals from all parts of the country need to relocate to metro cities such as Bangalore, Delhi, Pune etc as these are the only cities that offer jobs to IT professionals. Consequently, they need to rent out an accommodation.

They have no choice other than renting an apartment as their duty demands this. One cannot avoid this expense even if they wish, as this is because of their job.  As a result, the rent paid by the user is exempted from taxes by the India Government. On the other hand, the employer needs to give house rent allowance.

A minimum of the following is the exemption that one gets from the House Rent Allowance:

  • HRA received.
  • If rent is less than 10% of the income
  • 40% of the income and 50% in metropolitan cities.

In such cases, salary is equal to basic sum inclusive of the dearness allowance (basic+DA).

Allowance on Transportation

You spend some money in order to commute from your house to workplace. This is an expenditure that you cannot avoid even if you want to. Consequently, transport allowances are exempted from being levied on income tax by the Indian Government, if your employer provides you with an allowance for commuting which is known as the transport allowance. For this, you do not need to provide any receipt of the expenditure that you make on commuting to the office. On the other hand, Rs 1600 is the monthly income which needs to be paid. 

Children Education Allowance

Children Education Allowance is another form of expenditure on which income tax is not levied. This benefit is given by the employer to their employees so that they can make use of them in order to get tax exemptions. The monthly limit of this plan is Rs. 100, only for 2 children.

Subsidy on Hostel Facility

Hostel Subsidy is an exemption which is connected to children education policy. This subsidy is received up to Rs. 300 on a month basis, only for two children. 

Added Allowance That can get exemptions in Income Tax

  • High Altitude Allowance
  • Special Compensatory Allowance
  • Counter Insurgency Allowance
  • Island duty allowance
  • Allowances applicable to North East
  • High Active Field Area Allowance
  • Compensatory Field Area Allowance
  • Tribal allowance
  • Uniform Allowance, etc.

The allowances mentioned above are tax-free, but make sure that you give the genuine proof of the expense.

Income Tax Exemption on Housing Loan

This type of Exemption is applicable because you need to change your place due to the job. After relocating you might opt to purchase a house on load rather than rent one. In case of a home loan, the payment of interest is exempted from tax. This helps the person to get a maximum exemption for about Rs 2 lakhs on interest levied on housing loan.

On the top of this, there are certain conditions that are applicable for this type of exemption. One of them is that the house needs to be occupied by the owner. This exemption is applicable only if your house is still under construction. But the construction is supposed to be completed within a time span of 3 years.

Section 80C

Government wishes to encourage some types of expenses and investments.  In order to realize this, it has given the advantage of tax deductions. Subsequently, we have several investments as well as expenses offered by section 80C, 80CCC and 80CCD. On the other hand, the total deduction in this section is only up to Rs 1.5 Lakhs.

  • Employee Provident Fund
  • Pension/ Annuity Schemes
  • Life insurance premium
  • Tax Saving mutual fund (ELSS)
  • Home loan principal payment
  • Sukanya Samriddhi Account
  • Tuition fees of children
  • PPF Account Contribution
  • National Saving  Certificate
  • Tax-saving fixed Deposit
  • Post office time deposits 

Income Tax Act: Deductions mentioned below Chapter VIA

Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)

RGESS scheme entitles the policyholder to save extra tax. To get leverage from this advantage, you need to be investing the money in the share market for the first time. Moreover, the annual income needs to be less than Rs 10 lakhs. Therefore, you can invest around Rs 50,000 in this scheme.

The tax deduction is applicable on 50% of the investments you make. Therefore, if the person invests around Rs 50,000, then the tax deduction will be of Rs 25,000 only.

Section 80D:  Medical Insurance Deduction

This scheme is a good opportunity that helps an individual to save tax for an income that exceeds 1.5 lakh. Thus, everyone must make use of this golden opportunity to save tax. Though the income tax slab was not changed, the limit under section 80D was increased.  This is described in Section 80D. As per section 80D, the tax deduction is applicable for those who have taken a medical insurance for themselves, family as well as their parents.

Section 80DD: Deduction For Maintenance of Disable Dependent

This section offers an additional tax deduction of about Rs 50,000. Following are the conditions that you need to fulfil in order to avail the benefits of this section:

1. You must be the guardian of a differently abled individual. That person can be physically or mentally disabled.

2. You have to give a certificate from an authorised medical practitioner.

3.  All the expense of arising from the rehabilitation, training treatment, and nursing.

Therefore any amount deposited under any scheme taken for the differently abled depended on will be entitled to tax deduction. Deductions of about Rs 1,00,000 can be claimed if the dependent is suffering from any severe disability.

Section 80DDB: Serious Ailment Deduction

This deduction is primarily for those who need to get the treatment of serious disease. As per this section, a person can avail deduction of an income tax of Rs 40,000.

1.    The deduction is applicable for the expenditure made to treat a disease of self or someone dependent.

2.    There is a prescribed list of diseases that are covered.

3.    The expense made should be real. Reimbursements of claims get subtracted.

4.    Certificate for the illness must be from a government doctor.

5.    Rs 80,000 are the deduction limit for senior citizens.

Section 80E: Deduction on Loan for Higher Studies

Similar to the home loan interest, income tax deduction can also be claimed for interest on education loan.

1.    An education loan can be taken from any financial institution.

2.    The tax deduction can be availed for up to 7 years.

3.    The advantage of this facility can be utilized only in case of higher education.

4.    The benefit can be utilized only for the person or his spouse/children. Even the legal guardian of the scholar can reap the benefit.

Section 80G: Deduction for Donations

The donations mentioned in Section 80G are entitled to tax deduction. The deductions vary depending on the kind of receiver, which means that it may be 100% or 50% of the donation made.

Section 80GG: Deduction on House Rent Paid

Employees who are unable to leverage allowance for house rent are eligible for this deduction from their company. As per the specified rules, these people are eligible for this deduction if Deduction is lower of

  •  Rent is less than 10% of salary
  •  Rs. 5000 per month, i.e. Maximum Deduction is 60,000.
  •  25% of whole income

There are a few clauses for receiving this benefit.

  • The employer or his partner or minor child must not possess an accommodation in the city they are working.
  • House rent allowance (HRA) must not be received by the employee.
  • The employee must not posses any self-occupied residential location in any place.

Section 80TTA: Saving Account Interest Deduction

If the yearly taxable income is less than Rs, 10,000 then the interest received on the saving account is not counted in the taxable income.

Section 80U: Deduction for Disabled

As per section 80U, anyone suffering from a disability is eligible to get an extra deduction from their taxable income. In such cases Rs 50,000 can be deducted from their taxable income.  Moreover, in case of severe disabilities, the deductions will be Rs 1,00,000. To get the benefits from this deduction one needs to get a certificate from a doctor who works in a government hospital.

Other Deductions

Section 80GGA:  This section is for the donations made in case of rural development or scientific research

Section 80GGC: Deductions that are made in case if one contributes to any political parties

Section 80QQB: Deductions in case Royalty Income achieved from a patent. In such cases Rs. 3,00,000 is the maximum deduction made.

Section 80RRB: In case of royalty earned by writers (excluding the writer of textbooks), Rs. 3,00,000 is the maximum deduction made. 

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